California Main Street Small Business Tax Credit II: First-come, First-served by November 30
By Karen Connair, Partner, Tax & Business Services & Marie Middleton, Senior Manager, Tax & Business Services
California has passed Assembly Bill (AB) 150, establishing the Main Street Small Business Tax Credit II. The new tax credit program provides financial relief to qualified small businesses for economic disruptions in 2020 and 2021 resulting in job losses.
Taxpayers can use the credit against income taxes, or to make an irrevocable election to apply the credit against sales and use taxes.
To qualify for the credit, qualified small business employers (including S-corporations) must:
- Have 500 or fewer employees as of December 31, 2020 (including part-time employees), whose wages are subject to California withholding laws.
- Have experienced a decrease of 20% or more in gross receipts.
- Calendar year filers should compare 2020 to gross receipts for 2019.
- Fiscal year filers can either:
- Compare gross receipts for fiscal year 2019-20 to the gross receipts for fiscal year 2018-19, or
- Compare the gross receipts average for fiscal year 2019-20 and fiscal year 2020-21 to the gross receipts for fiscal year 2018-19.
- New businesses that commenced business after January 1, 2019, but on or before January 1, 2020, can compare gross receipts from January 1, 2020, through February 28, 2020, multiplied by 1.5, to gross receipts for the period April 1, 2020 through June 30, 2020.
The application for a tentative credit is made through the California Department of Tax and Fee Administration (CDTFA) during the period November 1, 2021 through November 30, 2021. The reservation is on a first-come, first-served basis.
The amount of the credit is equal to $1,000 for each net increase in qualified employees, measured by the monthly average of full-time employee equivalents. Each employer is limited to no more than $150,000 in credit.
The amount of credit available for the 2021 taxable year is reduced by any Main Street Small Business Tax Credit for the 2020 taxable year. The 2021 credit will be reduced by either:
- The 2020 credit allocated for application to Sales and Use Tax; or
- The 2020 credit received for application against income taxes.
- Must be paid wages subject to withholding under the California Unemployment Insurance Code.
- Cannot receive wages that are used in the calculation of any other tax credit, except for the Main Street Small Business Tax Credit for the 2020 tax year.
- Is not paid as an independent contractor.
- Applicable gross receipts (stated above) for calendar year, fiscal year or new businesses.
- Payroll information for the April 1, 2020, to June 30, 2021, tax periods.
- Number of employees as of December 31, 2020.
A qualified employee:
To claim this credit, taxpayers must submit a reservation by November 30. Since this credit is available on a first-come, first-served basis, Marcum suggests that readers reach out to us as soon as possible to determine qualifications by reviewing such items as: